Royal Bank of Scotland settles Libor charges

U.S. and U.K. authorities have fined Royal Bank of Scotland PLC more than $610 million for its role in the manipulation of a key global interest rate.

Reuters

In the foyer of a Royal Bank of Scotland office in central London.

RBS is the third major bank caught up in an international scandal over banks’ setting the London interbank offered rate. Libor, as it’s known, provides the basis for trillions of dollars’ worth of in contracts around the world, including mortgages, bonds and consumer loans.

The findings broadly centered on RBS’s setting of the yen, Swiss franc and U.S. dollar submissions for Libor, RBS said.

U.S. and U.K. regulators fined RBS
RBS, -1.65%RBS, -2.05%
more than $460 million for rate rigging. Meanwhile, a unit of RBS agreed to plead guilty in a Department of Justice investigation to felony wire fraud and admit its role in manipulating rates. It accepted a penalty of $150 million and will cooperate in its probe.

RBS says wrongdoing was predominantly linked to 21 employees — all of whom have left the bank or been disciplined.

In addition, RBS entered into a deferred-prosecution agreement with the U.S. Department of Justice, saying it would continue to cooperate in exchange for the deferral of criminal wire fraud and antitrust charges.

RBS said wrongdoing was predominantly linked to 21 employees. All these employees have either left the bank or been disciplined, the bank said.

RBS also said investment-banking chief John Hourican would leave the bank, despite having no role in the alleged rigging of rates. None of the regulators concluded RBS, as a company, had engaged in any deliberate misconduct, the bank added. RBS said there were no findings to suggest senior management at the bank looked to artificially lower submissions.

“We are today holding RBS accountable for a stunning abuse of trust,” Asst. U.S. Atty. Gen. Lanny Breuer said in a statement. “The bank has admitted to manipulating one of the cornerstone benchmark interest rates in our global financial system, and its Japanese subsidiary has agreed to plead guilty to felony wire fraud. The department’s ongoing investigation has now yielded two guilty pleas by significant financial institutions. These are extraordinary results, and our investigation is far from finished. Our message is clear: no financial institution is above the law.”

As part of the settlement, the U.S. Commodity Futures Trading Commission ordered RBS and its Japanese unit, RBS Securities Japan Ltd., to pay a $325 million penalty over the successful manipulation, attempted manipulation, and false reporting relating to the London interbank offered rate in yen and Swiss franc.

The CFTC said the bank’s efforts to manipulate Libor date back to at least mid-2006 and continued even after RBS traders learned of the CFTC’s Libor investigation. The activities involved more than a dozen RBS derivatives and money market traders, one manager, and multiple offices around the world, including London, Singapore, and Tokyo, it said.

The traders’ requests were either for falsely high submissions or falsely low ones, “whatever was needed to turn a profit,” the CFTC said in its order.

“RBS’s traders were able to carry out their many attempts to manipulate Yen and Swiss Franc Libor for years because RBS lacked internal controls, procedures and policies concerning its Libor submission processes, and failed to adequately supervise its trading desks and traders,” the CFTC said in a statement. “RBS did not institute any meaningful controls, procedures or policies concerning Libor submissions until on or about June 2011.”

The U.S. Justice Department said some of the abuse was conducted in collusion with a trader at UBS AG. The Swiss bank in December was fined $1.52 billion by authorities for its role in rate-rigging, and two of its traders, including the one named in the Department of Justice’s RBS document, were charged with criminal conspiracy.

The bank agreed to pay of £87.5 million to the U.K. Financial Services Authority. The U.K. regulator said RBS colluded with other banks and interdealer brokers on the submissions and only fully addressed the risk traders could manipulate rate submissions in June 2011.

“The RBS Board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees,” RBS Chairman Philip Hampton said in a statement. “This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past.”

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